Haryana Electricity Regulatory Commission Issues Terms and Conditions for Renewable Energy Projects

Strategic Insights -

The Haryana Electricity Regulatory Commission (HERC) has issued new terms and conditions for determining tariffs for renewable energy projects, renewable purchase obligations, and renewable energy certificates. These regulations will come into force on April 1, 2026, and remain in effect until March 31, 2029. The regulations apply to all grid-connected renewable energy projects and obligated entities in Haryana, including distribution licensees and open access consumers.

Key Takeaways:

  • The regulations define a renewable energy project as one that uses new wind turbine generators or solar technologies approved by the Ministry of New and Renewable Energy and the Haryana Renewable Energy Development Agency (HAREDA).
  • A hybrid project must comprise at least 33% of other renewable energy sources and operate at the same point of interconnection to be considered as a renewable energy project.
  • The tariff for a renewable energy project will be a single-part tariff comprising return on equity capital, interest on loan capital, depreciation, interest on working capital, and operation and maintenance (O&M) expenses.
  • All renewable energy projects, except for biomass projects, with an installed capacity of at least 10 MW, will be treated as must-run projects.
  • The capital subsidy will not include the grant, incentive, or subsidy issued by the government, and the lease cost of land acquired on a lease basis will be included in the capital cost.
  • The normative debt ratio for determining the generic tariff will be 70:30, and for a project-specific tariff, if the equity deployed exceeds 30% of the capital cost, the equity exceeding 30% will be treated as a normative loan.
  • The loan tenure for the renewable project will be considered as 15 years, and the normative interest rate will be the average marginal cost of funds-based lending rate (one-year tenor) of State Bank of India prevails during the last six months, plus a margin of up to 200 basis points.
  • The depreciation will be allowed up to 90% of the project's capital cost, and the depreciation rate for the first 15 years will be 4.67% per annum.
  • The normative return on equity will be calculated based on 14% of normative equity capital per annum, and the corporate tax allowed.
  • The interest on working capital will be determined at the average marginal cost of funds-based lending rate (MCLR) (one-year tenor) of SBI prevailing over the last available six months, plus an appropriate margin not exceeding 200 basis points.
  • The O&M expenses will be determined for the tariff period based on normative O&M expenses, and the normative O&M expenses will escalate 3.45% per annum over the tariff period.
  • The proceeds from Clean Development Mechanism (CDM) carbon credits will be shared between the generating companies and the beneficiaries, with the project developers retaining up to 100% of the gross proceeds from the CDM benefit for 12 months after the project's commissioning.
  • The income tax benefits on accelerated depreciation will be accounted for while determining the tariff, and the assessment of benefit will be calculated by considering the normative capital cost, accelerated depreciation rate, and corporate income tax rate.

Statistics:

  • The tariffs will be determined based on the weighted average cost of capital (WACC) and the discount factor for calculating the project-specific tariff and levelized tariff.
  • The capital cost will include all capital work, including plant and machinery, initial spares, civil work, and the project's erection and commissioning.
  • The capital subsidy will not be included in the capital cost, and the lease cost of land acquired on a lease basis will be included in the capital cost.
  • The normative debt ratio for determining the generic tariff will be 70:30, and for a project-specific tariff, if the equity deployed exceeds 30% of the capital cost, the equity exceeding 30% will be treated as a normative loan.
  • The loan tenure for the renewable project will be considered as 15 years, and the normative interest rate will be the average marginal cost of funds-based lending rate (one-year tenor) of State Bank of India prevailing during the last six months, plus a margin of up to 200 basis points.
  • The depreciation will be allowed up to 90% of the project's capital cost, and the depreciation rate for the first 15 years will be 4.67% per annum.

Sources:

  • Her Excellency Haryana Electricity Regulatory Commission (HERC) (2022)
  • Global Data Point (2022)
  • SyndiGate Media Inc. (2022)
  • Ministry of New and Renewable Energy (MNRE)
  • Haryana Renewable Energy Development Agency (HAREDA)